Nippon Steel's Profit Plunge and the US Steel Crossroads: A Make-or-Break June for Steel Titans

The steel industry is bracing for a pivotal month. Nippon Steel Corporation (5403.T) has warned of a 43% drop in net profit for fiscal 2025, while U.S. Steel (X.N) faces a June 18 deadline to resolve its $14.9 billion acquisition by Nippon. The outcome of these intertwined events will shape the financial health of both companies and the global steel landscape.

Nippon Steel’s Profit Deterioration: A Perfect Storm

Nippon Steel’s projected net profit for the fiscal year ending March 2025 is expected to plummet to ¥200 billion (≈$1.4 billion)—a 43% decline from the previous year’s ¥350.5 billion. This stark reversal stems from:
1. U.S. Tariffs and Trade Volatility: Heightened tariffs on Japanese imports, compounded by geopolitical tensions under President Trump’s administration, have eroded margins.
2. Regulatory Gridlock: The prolonged review of its U.S. Steel bid by the Committee on Foreign Investment in the United States (CFIUS) has delayed capital deployment and added operational uncertainty.
3. Global Economic Softness: Weak demand in sectors like automotive and construction, paired with overcapacity in global steel markets, has suppressed prices.

The U.S. Steel Deal: A June Deadline Crossroads

The fate of Nippon Steel’s acquisition of U.S. Steel hinges on two critical deadlines:
1. CFIUS Recommendation (Due June 18, 2025): The committee must advise President Trump on whether the deal poses national security risks. A rejection could force Nippon to abandon the transaction, triggering a $1 billion breakup fee and opening the door to rival bidder Cleveland-Cliffs (CLF.N).
2. Legal Pause Expiry (June 5, 2025): Litigation against the Biden administration’s earlier rejection of the deal will resume unless CFIUS clears it.

The stakes are colossal. Nippon aims to modernize U.S. Steel’s aging infrastructure—such as its Big River Steel 2 (BR2) mini-mill—to boost efficiency and competitiveness. U.S. Steel’s Q1 2025 net loss of $116 million underscores its reliance on the deal to stabilize cash flows and fund operations like its Minnesota iron ore pellet plant.

The Cleveland-Cliffs Contingency

Should Nippon’s bid fail, Cleveland-Cliffs—a U.S.-based steelmaker—is poised to make a rival offer. Its “all-American solution” emphasizes preserving domestic jobs and supply chains. However, Cleveland-Cliffs’ smaller scale (market cap: $4.2 billion vs. Nippon’s $23 billion) raises questions about its ability to fund the deal without debt burdens.

Operational Outlook: Can U.S. Steel Turn the Tide?

U.S. Steel’s Q2 2025 outlook offers a glimmer of hope. Management expects adjusted EBITDA to rebound to $375–425 million, driven by:
- BR2’s Ramp-Up: The mini-mill’s record shipments and 10% EBITDA margins, despite $50 million in ramp-up costs.
- Price Gains: Higher steel prices in key markets like automotive and construction.
- Cost Discipline: Reduced capital expenditures ($359 million in Q1 vs. $640 million in Q1 2024).

However, risks linger. Planned maintenance in its flat-rolled division and tepid European demand could constrain margins. A failed Nippon deal might force U.S. Steel to shift to cheaper electric arc furnaces, risking job cuts and operational declines.

Investment Implications: A High-Stakes Gamble

• Nippon Steel Investors: The stock has already slumped by 22% year-to-date on profit warnings and regulatory fears. A positive CFIUS ruling could spark a rebound, but lingering trade tensions and tariff risks remain.
• U.S. Steel Stakeholders: The shares surged 16% in April on CFIUS optimism but now trade near $44—below the deal’s $50.25 per share offer. A “no” from CFIUS could send shares plunging toward $30, while a “yes” might lift them to $60.

Conclusion: June’s Decisions Will Define Steel’s Future

The coming weeks are a make-or-break moment for both companies. A green light from CFIUS would:
- Unlock Nippon Steel’s Value: By enabling modernization of U.S. Steel’s facilities and accessing critical U.S. markets.
- Stabilize U.S. Steel’s Finances: Reducing its debt load ($4.05 billion) and funding growth in high-margin products like its InduX™ ultra-light steel.

Conversely, a rejection would:
- Trigger a Bidding War: Potentially benefiting Cleveland-Cliffs but introducing new regulatory hurdles.
- Risk U.S. Steel’s Survival: With its Q2 EBITDA guidance hinging on deal certainty.

The data is clear: Nippon Steel’s profit drop and U.S. Steel’s regulatory crossroads are inextricably linked. Investors must monitor CFIUS’s June 18 recommendation, steel price trends, and BR2’s utilization rates to gauge whether these steel titans can pivot from decline to dominance—or succumb to the weight of their own ambitions.

In an industry where margins are as thin as the steel itself, June’s decisions will determine whether these companies forge ahead—or bend under the pressure.